WISE iTech (KOSDAQ:065370) Is Carrying A Fair Bit Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that WISE iTech Co., Ltd. (KOSDAQ:065370) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for WISE iTech

What Is WISE iTech's Debt?

The image below, which you can click on for greater detail, shows that at September 2024 WISE iTech had debt of ₩29.2b, up from ₩11.6b in one year. However, because it has a cash reserve of ₩5.44b, its net debt is less, at about ₩23.7b.

How Strong Is WISE iTech's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that WISE iTech had liabilities of ₩13.4b due within 12 months and liabilities of ₩22.2b due beyond that. On the other hand, it had cash of ₩5.44b and ₩563.1m worth of receivables due within a year. So it has liabilities totalling ₩29.6b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since WISE iTech has a market capitalization of ₩51.0b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since WISE iTech will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year WISE iTech wasn't profitable at an EBIT level, but managed to grow its revenue by 5.0%, to ₩30b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months WISE iTech produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₩1.7b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through ₩19b of cash over the last year. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for WISE iTech you should be aware of, and 2 of them don't sit too well with us.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.